Sunday, December 2, 2012

As part of the Affordable Care Act there is an upcoming Medicare tax increase for individuals with a gross income in excess of $200,000 or couples who earn more than $250,000. The additional tax will be .9% on all earnings in excess of the above thresholds. Employers will not have to match this additional tax.  The new tax starts with all wages earned starting January 1, 2013.

One potential issue that will is arise is an employee who is married but the spouse does not work. The employee will earn $210,000 in 2013. The employer is required to withhold the additional .9% Medicare tax on the $10,000, even though according to the thresholds if the employee files married filling joint the tax is not due. The IRS guidance is that the employer is still required to withhold the tax and the employee will receive a refund of any overpaid tax when their tax return is filed.

Employers will need to be aware of the addition of taxable wages due to taxable fringe benefits for services rendered. Examples could be awards, gifts or employee benefits. The value of these items could potentially push the taxable earnings over the $200,000 threshold resulting in the additional tax.

We recommend that you communicate with your employees who may be in danger of this additional tax now. Explain the guidelines the employer is required to follow so that they will not be surprised in the middle of the year.

For specifics on the implementation see http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Questions-and-Answers-for-the-Additional-Medicare-Tax

If you have questions regarding this or any payroll tax issue contact gary@illuminaregroupinc.com or go to www.illuminaregroupinc.com and click the "contact" tab.